EconomyCovid lockdowns hammer China’s services sector

Covid lockdowns hammer China’s services sector

China’s services sector activity has plunged to its weakest level in more than two years as lockdown measures aimed at reining in the highly infectious Omicron variant darkened an already bleak economic outlook.

The Caixin China services purchasing managers’ index, which asks companies whether they experienced an increase or decrease in business activity compared with the previous month, fell to 36.2 in April from 42 in March, the second-sharpest fall since the survey was launched in 2005.

“The new round of Covid-19 outbreaks hit the service sector hard,” said Wang Zhe, senior economist at the Caixin Insight Group, explaining that supply and demand had “contracted severely”. 

The survey results were the latest indicator of the economic pain inflicted by President Xi Jinping’s zero-Covid policy, which has confined hundreds of millions of people to their homes for weeks and limited travel within the country.

Several multinationals, including Starbucks, Estée Lauder, Apple and Coca-Cola, have raised the alarm about the effect of China’s lockdowns, saying it would eat into their revenues in the world’s largest consumer market.

The Caixin survey results revealed the blunt impact of the lockdowns on Chinese businesses. The 400 surveyed companies reported that they had to lower their prices because of sluggish consumer demand, while transportation and raw material costs had increased owing to intercity travel restrictions.

Local officials, fearful of importing coronavirus cases, have placed strict limits on many intercity travel routes that usually enable the free flow of goods from suppliers to buyers.

Some companies surveyed said they had laid-off workers because of the collapse in consumer demand and rising costs.

Economists have warned that the impact of the measures could be even more severe than the contraction suffered during the initial outbreak in Wuhan two years ago because the restrictions have been focused in and around Shanghai, where many high-tech and automotive manufacturers are located.

Cases have fallen in Shanghai over the past fortnight and several manufacturers in the city, including Tesla, have resumed operations.

But even as conditions ease slightly in China’s financial hub, businesses across the country have had to adapt to an ever-changing array of public health measures.

Several cities, including Hangzhou and Wuhan, have introduced a requirement that residents undertake a PCR test every 48 hours to travel on public transport, eat in restaurants or visit public places. Experts said the measures risked throwing cities into de facto lockdown and extending the economic drag on the service sector.

Beijing officials on Wednesday called the coronavirus situation in the capital “very challenging” after recording 51 cases. Authorities shut down several metro stations and bus routes and ordered office workers in Chaoyang, the city’s largest district, to work from home from Thursday.

Daily coronavirus cases in the capital have remained at about 50 for the past week. Beijing has stopped short of ordering a citywide lockdown but many residents have been ordered to stay in their apartments.

A Financial Times analysis of traffic data showed that roads usually heaving with traffic in downtown Beijing had a thin trickle of vehicle activity during this week’s three-day public holiday, in what is normally a busy period for shops and restaurants.

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